SCRANTON – After a Catholic university in Pennsylvania said that a firm it hired to do accounting work informed it of its eligibility for a $6 million tax credit and that it should not have to pay the firm a contingency fee of over $900,000, it has since withdrawn its litigation and settled the case.
Marywood University of Scranton first filed suit in the U.S. District Court for the Middle District of Pennsylvania on June 22 versus Synergi Partners, Inc., of Florence, S.C.
“Defendant Synergi purported to conduct a complete accounting and legal analysis and determined that Marywood was somehow entitled to a $6 million tax credit. Upon review by Marywood’s licensed accountants, it was determined that Marywood was not entitled to the $6 million tax credit purportedly identified and quantified by Synergi,” the suit said.
“Yet Synergi seeks payment of a so-called ‘contingency fee’ of over $900,000, based on Synergi obtaining for Marywood a useless and purported $6 million tax credit that Marywood can neither file for nor claim without risk of audit, civil (and perhaps criminal) penalties and/or concomitant reputational harm. Marywood brings claims against Synergi for fraudulent inducement and declaratory judgment.”
The two parties entered into an agreement for tax and accounting services on March 9, 2021, where Synergi would calculate eligibility for an Employee Retention Tax Credit (ERTC) as provided for in the Coronavirus Aid Relief and Economic Stimulus (CARES) Act – and in exchange, receive a 15 percent “contingency fee” based on the amount that Synergi calculated for Marywood.
“On July 15, 2021, Synergi sent to Marywood an invoice purporting to indicate that Marywood was entitled to an ERTC in the amount of $6,012,944.15. Synergi’s invoice purported to charge Marywood a ‘contingency fee’ in the amount of $901,941.62, supposedly owed by Marywood to Synergi in two equal installments of $450,970.81 each,” the suit stated.
“Because of, among other things, the sheer size of the alleged credit and questions as to how Synergi determined Marywood’s eligibility for the alleged credit and the amount, Marywood turned the matter over to its outside accounting and auditing firm, Clifton Larson Allen, for review and verification. Marywood’s outside accounting and auditing firm determined that Marywood was not eligible for the alleged credit.”
UPDATE
In a response to the initial litigation, Synergi stood by the work it was hired to perform for Marywood.
“The legislation governing the CARES Act ERC and the process of determining eligibility are complex. The founders of Synergi Partners have over 150 years of collective experience in the tax credit industry. Our assessment of Marywood’s eligibility is based on our expertise and understanding of the legislation. We work with outside counsel to ensure our interpretation is reasonable based on the law. While Marywood’s other tax consultant may have reached a different conclusion regarding eligibility, Synergi Partners stands behind its work product.”
As to the issue of repayment for services rendered, Synergi explained that a miscommunication was responsible for the conflict.
“There was an unfortunate internal miscommunication, as well as miscommunication between Synergi and Marywood, resulting in a demand letter being sent to the client despite some concerns over eligibility. Synergi and Marywood reached a mutual resolution regarding the issue on the same day Synergi was made aware of the lawsuit, and the complaint is in the process of being dropped,” the company's response stated.
“One important step in our process is the review of the credit package with the client and sometimes their CPA or another tax advisor. We go through the eligibility assessment and credit calculated. We help answer any questions about factors considered in the calculation to help the client understand and have confidence in the credit. Marywood’s other tax advisor, who did not participate in this discussion or speak with Synergi, had a different opinion. Normally, we work to help a client’s CPA or other tax advisor understand Synergi’s work product to find a resolution. In this instance, that type of discussion did not occur due to miscommunications. Synergi would not require payment for its tax credit services if there was no basis for the client to claim the tax credit.”
The case was then resolved through a settlement in early July which dismissed the case, with the parties providing a joint statement on its resolution.
“Marywood University and Synergi Partners have reached a mutual resolution and the complaint is in the process of being dismissed. The matter at hand stems from a number of factors, including a miscommunication between Synergi and Marywood, as well as a difference of opinion between Synergi and Marywood’s tax consultant – not the result of any fraud or intentional misconduct by Synergi. Synergi Partners was founded in 2018 by tax credit industry veterans with over 150 years of collective experience. The executive team consists of widely-regarded thought leaders who have helped shape the tax incentives industry. Synergi Partners remains committed to providing the best tax credit services available and always aims to operate in the best interest of its clients.”
On July 6, plaintiff counsel William J. Clements filed a notice of dismissal for the case, with prejudice. Terms of the related settlement were not disclosed.
“Pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i), kindly dismiss the above-captioned action with prejudice. The parties have settled this action on mutually agreeable terms,” Clements said.
The plaintiff was represented by William J. Clements of Klehr Harrison Harvey Branzburg, in Philadelphia.
The defendant had not secured legal counsel.
U.S. District Court for the Middle District of Pennsylvania case 3:22-cv-00991
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com